As a working Realtor® I often hear from home buyers that have NOT purchased yet, that there is a real estate bubble which will pop and when it comes down again they will buy. Are we in a real estate bubble?
In 2005 the OC Register said that prices had to go up because so many people were moving into Orange County and the demand was strong enough to see another 30% increase. Well, we all know that was wrong. But ever since then my crystal ball has been a little cloudy. Here are a few differences that I see, for what it is worth.
By 2005 the housing market had returned from the crash of the mid 90s. Our area had been beaten up by a county bankruptcy, high interest rates, and layoffs in the space industry among other things. We had been way behind the bay area in prices and the market needed to rise. Home owners that had been under water once again had equity and there was a lot of pent up buyer demand. The same is true now. Then the mortgage industry came up with more “creative financing” to keep the fever burning and fuel the Wall Street craving for loans to package. The last two years of that bubble saw price increases which were fueled by zero down, 120% and neg-am mortgages. This resulted in many new home owners with no chance of gaining equity or even keeping there homes long term.
Find out what's happening in Laguna Niguel-Dana Pointwith free, real-time updates from Patch.
What is the difference today? What are we seeing? Real estate investors, cash buyers and flippers have had a heyday the last three years. Once the debt to income ratio of rental homes made sense the investors were buying. In early 2012 the national media got with the program and declared a bottom to the market. That signaled to the general public that it was safe to buy and the multiple offers began. Inventory was so low that buyer demand outstripped the supply. This has produced a vertical market where each sale is higher than the last and buyers are afraid NOT to offer over full price IF THE HOME IS IN GOOD CONDITION AND FAIRLY PRICED.
Why do I think there is actually NO bubble currently? The reason is that ONE THIRD of the sales in Orange County have been purchased by ALL CASH buyers who are NOT likely to lose their home. Also there is currently no mortgage gimmick which will create a bubble. Yes I do believe that after we see another 10% to 15% increase and/or substantially higher interest rates the market will cool. Also with another 10% increase in values more homeowners will no longer be underwater and will decide to sell, which will have the effect of increasing inventory and cooling the market.
Find out what's happening in Laguna Niguel-Dana Pointwith free, real-time updates from Patch.
If the meager economic recovery fizzles due to no real jobs (ie. non-government) then we certainly could have a pullback but not a crash. I think it is a good time to buy real estate.
Ron Buck, Realtor®
Ron Buck has been a real estate broker for 16 years with over 450 successfully completed transactions. He is a 11-year resident of Laguna Niguel and is an expert in south Orange County real estate. You can contact him at Ron@JonRonRealEstate.com or 949.456.0505.
